Shell expects oil price recovery to take several years
Published on Sat, 18 Jul 2015 79 times viewed
Reuters reported that Royal Dutch Shell expects oil prices to recover gradually over the next 5 years, with progress slowed by persistent global oversupply and receding Chinese demand growth.
The Anglo-Dutch energy giant is betting on crude rising to USD 90 a barrel by 2020, a key assumption in its move to buy rival BG Group for USD 70 billion to help transform it into a leading player in the costly deepwater oil production and LNG markets.
Mr Andy Brown, Shell's upstream international director, who oversees the company's oil and gas production outside North America, said that "We are not banking on an oil price recovery overnight. It will take several years but we do believe fundamentals will return."
He said, referring to deep spending cuts taken by oil companies in recent months in the face of a near-halving of oil prices since June last year that "Until such time, we, like other companies, will have to make sure we stay robust."
A rise in global supplies, mainly due to a sharp increase in output from US shale, has weighed on oil prices.
In the nearer term, Shell expects Brent crude oil to show only a modest recovery from today's USD 58 a barrel, with 2016 prices forecast to average USD 67 a barrel and USD 75 a barrel in 2017, based on the company's BG offer.
Oil companies rarely reveal the price forecasts that underpin their future strategies. The chief executive of Shell's rival BP , Bob Dudley, said recently he expected oil prices to remain low for a couple of years most certainly.
The drop in prices boosted demand across the globe. In the United States, gasoline consumption has soared to multi-year highs in recent months as motorists drove more and sales of large vehicles surged.
According to Mr John Abbott, Shell's downstream director who oversees refining and trading, consumers have also leapt on the drop in oil prices to stock up tanks.
He said that "In countries like Germany and the United States where people use heating oil, they use the low prices as an opportunity to fill up the storage tanks in their back garden. Some people watch pricing like a hawk. In Germany home consumer heating oil storage is at a five-year high today."
In China, where the economy's rapid growth since the early 2000s had been the engine for rallies in global commodity prices, the picture remains mixed.
Mr Abbott said that "On the consumer side, the 8.5 percent year-on-year increase in vehicle sales is still there, and you need fuel and lubricants to run those vehicles."
Demand from Chinese heavy industries is nevertheless slowing as the country's rapid growth in recent years cools down.
He added that "In China, industrial demand for oil products is plateauing. If you look at our sales of industrial lubricants, they are plateauing a little bit."
Source : Reuters